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Nedcor Limited. 2003 Results & Rights Issue. Agenda. Highlights 2003 results & action steps Recovery programme: progress to date Unlocking the value of the franchise The rights issue Summary. Highlights. New EXCO team Balance sheet clean up & implementing controls
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Nedcor Limited 2003 Results & Rights Issue
Agenda • Highlights • 2003 results & action steps • Recovery programme: progress to date • Unlocking the value of the franchise • The rights issue • Summary
Highlights • New EXCO team • Balance sheet clean up & implementing controls • Capital restored & strengthened • Recovery programme in place • Delivery on transparency & accountability • Old Mutual relationship strengthened Significant scope for improving profitability
Results • Funding • Expenses • Currency • Clean up the balance sheet
Capital – Why the rights issue? What happened to capital? • AC133 • Attributable loss • Dividends • Balance sheet clean up • Partially offset by preference shares & Tier 2 Why the rights issue? • Restore Tier 1 Capital • Optimise Tier 1 & 2 mix • Meet future regulatory requirements
Strategic & operational imperatives • Back to basics • Focus on Southern Africa • Improved measurement • Better governance • Clear accountability • Aggressive cost reduction • Enhanced risk & balance sheet management • Focus on client service Highly rated & respected SA bank
Financial agenda • Set 2003 baseline • Balance sheet clean up • Implement AC133 • Assessment of regulatory capital • Improve transparency & quality of earnings • Gain control over risks • Interest rates • Foreign exchange • Capital/asset growth • Nature of the investments • Implement value management • Risk based MIS • Aggressive cost cutting • Driving accountability DeliverROE
ROE – Income drivers 2003 *Average interest earning assets
Net interest income • Achieved a similar margin of 2,96% for the 2003 year • Major negative influences • BoE related funding • Management of interest rate risk • Accounting policy changes (AC133, AC102) • Historically oversold tax base • Peoples Bank “put” • Roll-off of expensive deposits - April 2004 • Implementing interest rate & foreign exchange risk policies • Reconstituted ALCO • Introducing funds transfer pricing & risk based capital allocation • Identify & focus on profitable business Optimisation of margin
Non-interest revenue • Focus on annuity type income • Improve trading income within defined risk limits • Capital not to be applied for speculative purposes • Apply consistent pricing discipline Better quality earnings
Expenses • Efficiency ratio 70,1%* - unacceptable • Operating expenses up to R9 950m • Inclusion of BoE for full year • Incentive awards expensed • Technology projects & resultant write-offs • Consolidation of businesses • Merger cost reducing & savings increasing • Integration of Peoples Bank into Nedbank • Rationalise back office processes & support functions & centralise procurement • Review unprofitable businesses • Flatten management structures • Cross-charging for internal services • Internal customers • SLAs Aggressive implementation - detailed report by half year results *Excludes foreign exchange translation
Taxation • Income Statement • Effective tax rate increased from 10% to 32% • In future will trend towards statutory rate • Reallocation of NII to taxation • Impact of AC133 • Increase in STC • Balance Sheet • Additional provisions of R844m • R583m relating to BoE pre-acquisition items Active resolution of outstanding issues
Financial priorities 2004 • Implement risk policies & manage businesses accordingly • Set, enforce & measure accountability • Proactive capital management • Better allocation of capital • Optimise structure of balance sheet • Improve profitability • Drive down expenses • Clear understanding & focus on value drivers • Deliver ROE & ROA Core businesses are solid -need to optimise
New EXCO team Strategic overview Deliver the merger Improved transparency Focus on customer service Recovery programme “Five Point Plan”
Deliver the merger • On track • Corporate client migrations substantially completed • NBS migration to be completed in 2004 • Systems & data centre rationalisation in 2004 Operational synergies fully extracted by 2005
Improved transparency Rebuild reputation
Focus on customer service Unlock the value of the franchise
Client focused structure Dominant in commercial & industrial property Strong mid-size corporate franchise Strong regional presence Significant cross-sell opportunities Reward systems to drive ROE Institutional bancassurance Nedbank Corporate Nedbank Corporate Corporate Banking Business Banking Property & Asset Finance International Africa Unlock the value of the franchise
Nedbank Capital • Treasury trading subscale • Single ‘house view’ for client servicing • Extensive BEE advisory & financing • Strong project finance credentials • Capital markets/securitisation • Leading M&A business Nedbank Capital Treasury Corporate Finance Capital Markets ENF Unlock the value of the franchise
Retail & Wealth Management • Nedbank: increased focus on sales & service levels beginning to show results • Total market penetration subscale, but good high-end penetration • Go Banking: great partners in Pick ‘n Pay - still building for the future • Old Mutual alliances: access to customers & broker distribution • Peoples Bank integration Retail & Wealth Management Banc- assurance Wealth Management Retail Banking Old Mutual Bank Pick ‘n Pay Go Banking Unlock the value of the franchise
Embracing the FSC • Dedicated EXCO member in place • Leading advisor/funder of BEE transactions • Design plan for equity ownership in H2 2004 • Procurement project will assist in FSC compliance • Transformation – behind the curve Committed to meeting the FSC objectives
Governance • Board changes • Relationship agreement with Old Mutual to align strategy • Better information flow to stakeholders • Clear statement of expectations • Internal audit reports to Audit Committee • Checks & balances to prevent individual dominance
Sizing the issue • Restore Tier 1 capital • Optimise Tier 1 & Tier 2 mix • Anticipate regulatory requirements • Foundation for future Size based on 3 - 3,5 times dividend cover & improved earnings * R5bn rights issue & repayment of R2,5bn Tier 2 capital to Old Mutual & others
Transaction details Structure • R5bn rights issue Anticipated timing • GM: 17 March • Announce terms by 25 March • Subscription period: 13 April - 7 May • Closing: mid May Underwriting • Old Mutual to follow their rights • Proceeds fully underwritten
Our position & outlook Detailed progress report by August ‘04 • Addressed the financial position • Excellent platform • Necessary human & financial resources • New EXCO with skills to deliver • Will unlock the value of the franchise • Significant scope for improving profitability Committed to a target ofROE 20%+ for F2006
Certain statements in these materials constitute forward-looking statements, including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Forward-looking statements include words such as “expect”, “may”, “believes” and words of similar import. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and Nedcor’s plans and objectives to differ materially from those expressed or implied in this presentation and, in particular, in such forward looking statements (or from past results). The following factors, among others, may have a direct bearing on Nedcor’s financial condition and results of operations, and on whether Nedcor will achieve its strategic goals: general economic conditions, particularly in South Africa, performance of international financial markets, interest and foreign exchange rate fluctuations, increasing levels of competition, and changes in laws and regulations. Nedcor assumes no responsibility to update any of the forward-looking statements contained herein.
These materials, which have been issued by Nedcor Limited (“Nedcor”), relate to the proposed offering of rights (the “Offering”) by Nedcor. These materials do not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in Nedcor, nor shall these materials or any part of them nor the fact of their distribution form the basis of, or be relied upon in connection with, any contract or investment decision in relation thereto. Recipients of these materials who are considering a purchase of rights in Nedcor in the Offering following publication of the Offering Circular in connection therewith are reminded that any such purchase should be made solely on the basis of the information contained in the Offering Circular. No reliance may be placed for any purposes whatsoever on the information contained in these materials or on their completeness. No representation or warranty, express or implied, is given by or on behalf of Nedcor, its shareholders, any of its directors, officers or employeesor any other person as to the accuracy or completeness of the information or opinions contained in these materials, and no liability is accepted for any such information or opinions. Neither these materials nor any copy of them are for distribution, directly or indirectly, in or into the United States, Australia, Canada or Japan. These materials are not an offer of securities for sale into the United States or in any other jurisdiction where such an offer would be unauthorised. Neither the rights nor the ordinary shares represented thereby may be offered or sold in the United States (as such term is defined in Regulation S under the Securities Act of 1933) unless they are registered or exempt from registration. There will be no public offer of securities in the United States. Prices and values of, and income from, shares may go down as well as up and an investor may not get back the amount invested. It should be noted that past performance is no guide to future performance. Persons needing advice should consult an independent adviser.
